Oak Brook Business Ledger:
Many people looking to buy a business consider buying a franchise. After all, they think the franchisor has a cookie-cutter approach that can’t miss and they can just walk into the new business, which will be flush with cash. In the numbers I have read, four out of five new franchise businesses will not be around in five years. The numbers of franchises that fail are staggering.
Why is this the case? One reason may be that the franchisee does not have business experience and they do not know how to manage the business. Many people who buy franchises are “wowed†into only seeing the upside and not examining the downside. What things should a potential buyer be mindful of?
One thing that the potential buyer needs to see is a projected income statement for the year of purchase, preferably for each month of the first year and for the next several years thereafter. This is not something the franchisor normally provides, as the franchisor does not want to assume liability if the potential buyer does not make his or her numbers.
Since the potential buyer cannot receive these numbers from the franchisor, the potential buyer will have to assemble these numbers, perhaps with the assistance of their attorney or accountant, or both. Some of the numbers are available in the Uniform Franchise Offering Circular the franchisor must give you to inform you about the potential risks in purchasing the franchise.